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30 Mar 2009

The Cayman Islands Government today announced that it will provide access to comprehensive tax information assistance to 20 countries, including the majority of Cayman’s major trading partners.

Ireland, Japan, the Netherlands and South Africa now join eight other countries afforded tax information assistance to OECD standards, with a "unilateral mechanism, which does not require a bilateral treaty."

“The Cayman Islands took the proactive step of introducing the unilateral mechanism for the provision of information in tax matters, as a complement to our bilateral negotiation programme,” Cayman Islands Leader of Government Business, the Honourable Kurt Tibbetts said. “We recognised the need to increase the pace at which we could enter into tax information arrangements, while offering a phased approach to our negotiating partners under our bilateral programme in appropriate circumstances. We look forward to continuing this progressive approach.”

In combination, the arrangements noted above cover four of the seven G-7 states and 17 of the 30 OECD member states.

Based on its current negotiating programme – which reflects OECD countries (including significant trading partners) that have indicated interest in tax cooperation arrangements – the Cayman Islands aims in the following months to enter into arrangements with a number of additional countries, including the remaining G-7 and five other OECD member states.

Eighty per cent of hedge fund investors continue to believe that hedge funds can provide good, long-term returns, according to a recent survey conducted by IRC Conferences / Terrapinn, a leading global business media company and organiser of London's HEDGE 2009 congress. Only 20 per cent of investors said that recent global events have shaken their belief in the hedge fund industry.

The survey, which was conducted amongst 273 institutional investors, hedge fund managers and service providers from around the world, revealed that 39% of investors believe that the current depressed markets and heightened risk premia offer a great entry point for fresh investment. Unsurprisingly, the hedge funds themselves are even more optimistic, with 55% of hedge funds stating that the current environment offers exceptional opportunity.

Responses also showed that there was widespread agreement across the industry with regard to the reforms that are required, with one exception - the prickly issue of fees.

Investors, fund managers and service providers all agreed that the industry needs to have better transparency (95%, 97% and 97%) and stronger internal risk, compliance and audit functions (93%, 96% and 100%.) They also agreed on the necessity of having stronger self-regulation and statutory regulation.

While 43% of investors rated the issue of fees "very important" in reviving enthusiasm, only 14% of hedge funds did so. It is not simply lower fees that investors want, but fees which are better structured, to align more closely hedge fund managers' interests with those of investors.

While all categories saw better self-regulation as more important than statutory regulation, the difference between investors and hedge funds was again marked. Thirty two per cent of investors see statutory regulation as "very important," but only 13% of hedge funds believe it to be so.

Three key lessons were almost universally acknowledged in the respondents' feedback. Both investors and hedge funds acknowledged that independent administrators and custodians are essential (87% and 92 % respectively) and that a greater match is needed between hedge fund terms and liquidity (85% and 80%.) They also agreed that due diligence is more important than they realized (76% and 73%.)

The more sobering news for hedge funds is the suggestion that they may have to wait until 2010 for net inflows to the industry to restart. The majority of hedge funds expect net inflows to the hedge fund industry to commence in the second half of this year, but most investors do not expect this to happen before 2010.

Unsurprisingly, the hedge funds strongly believed that money entrusted to their care needs to stick around longer term. As a result, hedge funds are more enthusiastic than ever to attract capital from long-term, institutional investors such as pension funds.

Some of the hedge funds who responded to the survey said that they are implementing structural changes to make their product offering more attractive to investors. By far the most common response was that funds are looking at how they can improve their transparency. This answer figures at least twice as much as any other issue. The following list appears in order of number of citations: